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Big banks take baby steps toward commercializing blockchain

LONDON — A few years finance, blockchain was the talk of the financial services industry. Several large banks were testing the technology, lured by the give ones word of honour of improving some of the sector’s oldest processes.

This year, investors could be forgiven for wondering where blockchain went. After much hype in 2017, as the value of cryptocurrencies as though bitcoin skyrocketed, lenders aren’t as vocal about new blockchain pilots as they were back then. But that doesn’t unkind they’ve stopped investing in the technology.

Originally created as the digital ledger for bitcoin transactions, blockchain is essentially a abundant form of database that’s maintained across several computers. Banks have so far mainly opted to take some of the criteria behind blockchain, adapting the technology for different use cases to crypto.

In Italy, much of the country’s banking sector now applications Spunta, a blockchain network based on technology from New York-based firm R3, to reconcile balances between them, go lame and CEO David Rutter told CNBC’s “Squawk Box Europe.”

“We’ve talked for some time now about the promise of enterprise blockchain and it’s gargantuan to finally see it in practice and working at scale,” he said earlier this week.

Still, the Italian market represents merely a fraction of the European — and, of course, worldwide — banking industry, while reconciliation of accounts is just one use case where experts say blockchain can be put to use.

“It’s a start,” Rutter said. “We’d love to see it adopted in other European countries and then globally. The infrastructure that they deliver in place creates the foundation to roll out other technologies that can really have an impact on their bottom telephone.”

A bitcoin on an European banknote.

Alain Pitton | NurPhoto via Getty Images

For some big banks, the focus has increasingly inappropriately alternate to figuring out how they can actually make some money from blockchain. JPMorgan Chase, for instance, recently revealed its in-house digital currency JPM Frame had gone live for the first time with a large technology client.

Digital currencies

The coronavirus pandemic may secure a role to play in spurring banks to roll out commercially viable blockchain products, according to Lex Sokolin, co-head of fintech at blockchain strong ConsenSys.

“Being forced to adopt digital transformation as the primary mode of work definitely helps banks blurred on digital payment rails,” he told CNBC by email.

Sokolin added banks and other financial institutions are also now illiberal hesitant to experiment with digital currencies as they once were. With cash usage declining in tons developed economies — especially amid the pandemic — central banks are now exploring the rollout of their own virtual money, while brokerages with Fidelity now let their clients invest in crypto.

The People’s Bank of China is already testing a digital version of the yuan, while other primary banks have laid out a framework for how such virtual currencies could work in practice. ConsenSys, which is led by Ethereum co-founder Joseph Lubin, is handle on central bank digital currency projects in Hong Kong, Australia, France and Thailand.

“Our take is that this adoption and mutation will be incremental in most countries, but drastic in some individual geographies,” Sokolin said. “Payment systems don’t incline to replace each other entirely, but rather build on top of the rails incrementally.”

R3’s Rutter said more commercial banks in Europe could look to blockchain technology to promote their profitability.

“It’s a difficult journey to adopt blockchain technologies because it’s computing at the industry level,” he said. “At times you get through that bit of pain you have a great foundation to roll out other applications much easier.”

He added that inner banks are more intensely focused on digital currencies than ever before. Cash usage is set to fall distinctly in some countries — as much as 28% in the U.K. — this year amid Covid-19, according to Accenture. The Bank of England is one of the essential banks evaluating the prospect of issuing digital currency.

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